The U.S. unemployment rate must rise before Americans see relief from inflation, economist and former Treasury Secretary Larry Summers said Monday.
US inflation is around 8.6% year-on-year, its highest level in 40 years, and shows no signs of slowing down. Summers argues that the United States must maintain an unemployment rate above 5% for five years if inflation is to come down.
“We need five years of unemployment above 5% to contain inflation – in other words, we need two years of unemployment at 7.5% or five years of unemployment at 6% or one year of 10% unemployment,” Summers said in a speech in London, according to Bloomberg.
“Some numbers are remarkably disheartening from the Fed Reserve’s perspective,” he added.
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The US unemployment rate is currently at 3.6%.
Summers’ statement came hours after President Joe Biden claimed a recession was not “inevitable”. He said he came to this conclusion after a conversation with Summers.
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Biden made the statement during a testy exchange with reporters while vacationing in Delaware over the weekend.
“Economists say a recession is more likely than ever,” a reporter can be heard telling Biden on a beach.
“Now you sound like a Republican politician, just kidding, that was a joke, that was a joke,” Biden said. “But joking aside, no, I don’t think that’s the case. I was talking to Larry Summers this morning, there’s nothing inevitable about a recession.”
During a Sunday appearance on NBC, Summers himself predicted that a recession was likely. Several high-profile CEOs have also begun preparing for a recession.
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“My best guess is that a recession is coming. I’m basing that on the fact that we haven’t had a situation like this with inflation above 4% and unemployment above 4% without a recession follows in the next year or two. And so I think it’s likely that in order to do what’s necessary to stop inflation, the Fed will raise interest rates enough to cause the economy to sink into a recession,” Summers said over the weekend.